Forgot Password

Teranet: Canadian Real Estate Prices Make “Fourth Smallest” April Advance In 20 Years

Canadian real estate prices continue to see cooling growth, but still saw growth. The Teranet – National Bank House Price Index (Teranet HPI) shows prices climbed across the country in April. The monthly rise sounds great, but there were a few warning flags. The increase was one of the smallest for an April, and most gains were in overheated condo markets.

About The Teranet HPI

The Teranet HPI is mistakenly called a “lagging” indicator by agents, due to the use of transfer data. When your local board reports numbers, they use MLS sales information. The result is the prices Teranet uses have been agreed to up to 3 months before. On the other hand, Teranet only uses finished transactions. In a booming market, few sales fall through, so the MLS is a great measure. In a declining or cooling market, people start looking for ways out of sales, which make Teranet’s numbers interesting.

Quantity is another thing to note. The Teranet HPI includes all transfer data, not just sales done through the MLS. The result is Teranet has an estimated 20% more sales included, vs your local real estate board. If I told you 1 in 5 sales were excluded from stats, how would you feel about the numbers you just read? That’s why banks use Teranet.

Which should you be using? Neither number is better or worse than the other, just different. In a fast moving market, the MLS can give you a short term edge. In a slow moving market, the Teranet HPI is worth looking at. That said, short term gains that the MLS note are mostly useless. Homes are large assets, with high transaction costs and low liquidity. The usefulness of month-over-month data points is largely overstated. Now, on to the numbers.

Prices Across Canada’s Largest Cities Are Up Over 5%

The Composite 11, which is a weighted index of the 11 largest urban centres in Canada, made a climb in April. Composite prices, which are those of all home types, are up 0.2% from the month before. This brings the annual price gain to 5.62%, but only Vancouver and Victoria are above that number.

Teranet-National Bank HPI C11 (Annual Change)

Composite aggregate of home prices in Canada’s 11 largest cities.

Source: National Bank of Canada, Teranet, Better Dwelling.

National Bank analysts Marc Pinsonneault noted, “20-year history of the index it was the fourth-smallest April advance, after those of 2009 (a recession year), 2013 and 2015.” However, 8 of the 11 major cities tracked did see prices climb, which is better than none.

Toronto Real Estate Is Up Less Than 2% From Last Year

Toronto real estate prices didn’t do so shabby in April, but are tame compared to last year. The index shows a monthly increase of 0.24%, bringing the 12 month change to a whopping *drumroll* 1.89% increase. Prices in the city are down 7.12% from the peak obtained in July 2017, and the gains have been concentrated in the condo segment. Worth noting the rapid deceleration of price gains.

Toronto Real Estate Prices (Teranet-National Bank HPI)

Annual percent change of real estate prices in Toronto.

Source: National Bank of Canada, Teranet, Better Dwelling.

Vancouver Real Estate Is At An All-Time High, Due Entirely To Condos

Vancouver real estate continued to make the largest gains in the country. Prices in the city rose 0.28% in April, bringing the 12 month change to 15.89% – the highest in the country. This also places the market at a new all-time high, according to the index.

Vancouver Real Estate Prices (Teranet-National Bank HPI)

Annual percent change of real estate prices in Vancouver.

Source: National Bank of Canada, Teranet, Better Dwelling.

Pinsonneault noted that “recent gains have been smaller than before, which is consistent with the loosening of market conditions apparent from data published by the Real Estate Board of Greater Vancouver.” Further adding “the cooling of the Vancouver index advances has been the most obvious for dwellings other than condos.” Basically, the exuberance for condos more than made up for the lack of interest in detached and attached homes. The condo market is cooling, but it’s not as obvious when prices have climbed so quickly.

Montreal Real Estate Is Up Less Than 4% From Last Year

Montreal real estate, the booming market that failed to boom, made a solid jump in April. Composite prices in the city climbed 0.23%, bring the 12 month gain to 3.93%. Prices are 0.24% lower than the peak obtained just a few months ago, in January 2018. The rapid climb prices made in 2017, topped out at less than 6%, and have begun tapering since.

Montreal Real Estate Prices (Teranet-National Bank HPI)

Annual percent change of real estate prices in Montreal.

Source: National Bank of Canada, Teranet, Better Dwelling.

Generally speaking, prices pushed higher across the country, but price decelerations continues. Most of the declines are in non-condo segments of housing, an observation made by the CMHC a few weeks ago. The rise in condo prices is believed to be the result of B-20, forcing more buyers into the same budget.

The concentration doesn’t necessarily justify higher prices for condos. In fact, the CMHC noted just a few weeks ago, that it made their overvaluation models spike. Turns out justified exuberance is still exuberance.

Discuss On Facebook

34 Comments

Anyone that can look at that Toronto chart, and pretend last year won’t be followed by a widescale decline, needs to have their head checked. It’s TWICE as large as the previous high. The previous high following NEGATIVE growth. Even after the previous high, Toronto real estate prices were only just hitting the same inflation adjusted value as 1990.

who in their right mind would have bought in April the pre-sale condos that were over 1 million? 43% is a LOT if you watch the the market trend …are people really that stupid?? I am curious to see May numbers.

I would like to see a chart showing the spread between highest asking price in the last 12 months versus the actual current selling price. Also, if selling prices are increasing on average, are buyers getting more value than last year (better houses for the same or slightly increasing dollar value)? If the average house sold in 2016 was a 4 bedroom tear-down for $2M, are buyers purchasing a 4 bedroom fully reno’d house for $2.1M now? Small increase in price, huge increase in value, big hit to seller.

I agree that this process is definitely happening. And it only makes Bears’ position stronger. All data points to underestimation of the problem but not to overestimation. I would not advise you to dig it deeper though, or at least if you dig, don’t bring it up anywhere your findings.

By bringing real picture up you will allow media and then policymakers to make adjustments which will not fix the problem but potentially can freeze the debt levels where they are now which is only way of “saving” RE.

I find our job is to share commonly known information so we can help existing investors to exit with profit and also warn new homebuyers about all issues with RE, but we don’t want policymakers to action sooner then would action otherwise.

The best time to dig deeper is when we are already have both significant RE correction and recession. This way you will help to bring prices closer to fundamentals.

Sorry Rob, xelan huffs solvents. I’m trying to get him to quit but alas it isn’t working. Not sure what he is trying to communicate, maybe Jimmy has fallen down the well and needs help? Good comment, everyone focuses on the big number and not the momentum. In 6 4-6 months the $2.1 will be $1.8 and then the flipper is neg, let’s assume and needs to sell. They all pile in and $1.8 goes to $1.6. We will have to see how this plays out but if I pay $100 for a tulip bulb when they were going for $500, am I smart or still a sucker? Time will tell. Tick tock.

Vancouver market looks confusing as hell but all you need to know about it is that inventory for all properties combined (including booming condos) grew from 2.5 months a year ago to 5 months now. (100% increase)

Your remarks are very confusing and contradictory to one another,your talking from both sides of your mouth. Seems your just trying to promote your Twitter account. I appreciate firm committed remarks one way or the other.

You guys are clearly misunderstanding messages. I explained myself one time already that I stick to the facts, I don’t care if those facts are bullish or bearish I will highlight those as objective as I can. If you only want to hear only bearish point of view no matter what I’m not the kind of guy for that. In fact I don’t even understand what caused your confusion today. All my comments today were bearish. In the first one I agreed that things in RE are way worse than they are highlighted in the news and we shouldn’t reveal it to the media or policymakers YET because it will be bad for bears. It’s not the right time for that. In the second one I said that active inventory of properties on the market is growing in Vancouver which will bring prices down sooner or later. (again good for bears)

This is the last time I’m explaining those to you guys, I’ll try to be clearer in the future but if you don’t understand or don’t like what I’m posting you can easily ignore it. Just don’t throw bold statements and false accusations.

I’m finding the interest rate environment interesting. Variable rates declining, stress tests, fixed rates going up and bond yields for 10 year at 3%. I wonder if more Canadian’s will move to variable? Would the 1% spread make it easier for buyers to qualify for variable vs fixed? I can’t remember the rules for qualifying for variable vs fixed. There have been so many changes that it is getting hard for me to keep all the new rules straight!!! 1% spread must be tempting for people and the Cdn economy doesn’t look strong enough to keep up with the US rate hikes.

The US 2YR + 5YR + 10YR yields have all surpassed points which historically make things very interesting (though some of these ‘standards’ are being questioned. Fundamentals always prevail. Pray for mojo. BD4L

Big jump today. I really think the BOC should just raise in May. Longer term fixed are jumping big time, Banks are offering record discounts on variable. Delaying is just going to result in more people jumping into debt net before it gets reeled in.

5 year fixed mortgage at 2.99% expired earlier this year. I was offered 3.24 fixed or 2.5 variable closed 5 year from same bank. The variable lowered my payment that helped w cash flow as this is an income property. The kicker, my payment never increases on a variable. Instead my amortization is extended when rates go up. For every 25 bps increase my amortization would be extended about 9 months. I make annual contributions on top of regular mortgage payments so I’m happy with this and will pay it off long before my full amortization sunsets , but if you’re concerned about buyers never ever getting out of housing debt, this is how. Wanted to bring this up as the rate game is evolving daily. My 2.5 offer is now 2.45 if I did this deal today.

Thanks for sharing that. So say you signed a new mortgage today 25 years at 2.5%. if rates go up a 100 basis points between now and the end of your five year term. That would give you an additional 3 years of payment?

So five years from now you would be looking at 23yrs renewed at 3.5%(or higher)?

Yes. As per your example, a 100 bps increase would add roughly 3 years to my amortization, but because I make lump sum payments (think I’m capped at 20% per year) I plan to shorten my amortization. For others who don’t care, this combo of a low variable rate with a fixed low payment spread out over a longer period will defer the impact an increase in rates should have, but I’m starting to doubt will – unless you’re a new buyer being stress tested. Their buying power is eroded. I’ve heard of 2 of the major banks offering this to their existing clients this year. A new twist to be aware of. I’m w BMO.